Is Hevesi Doing an End-Run Around Campaign Finance Rules?

Hank Morris, the media whiz who became a Democratic darling in New York when he engineered the 1998 defeat of U.S. Senator Alfonse D'Amato, violated the cardinal rule of campaign operatives over the weekend. He got more coverage than his candidate.

His half-page color photo on the cover of the Sunday Times' Metro section was a grander display than anything he's snared for his client, Comptroller Alan Hevesi. Getting mayoral wannabe Hevesi's face on the tube in the corner of the picture was a nice, Morris-managed touch, but it awkwardly emphasized which of the two is the true star of this faltering campaign.

Morris's appearance at his desk in his familiar sweater also jangled nerves. Is it so coolly air-conditioned at Morris's 271 Madison Avenue officewhich serves simultaneously as the controversially cheap "headquarters" of the Hevesi campaignthat he can don a wool sweater in July? In fact, the cost of everything from staples to space at Morris's 4000-square-foot digs is now becoming the focus of the hottest dispute in the closely-fought mayoral race.

The charge, leveled by Hevesi's opponent, Council Speaker Peter Vallone, is that Morris is doing an end-run around the $5.2 million expenditure cap imposed by the city's Campaign Finance Board by freely subsidizing the campaign of a man who's been his friend for 30 years. The purpose of the CFB cost cap is to level the playing field; but gambler Morris apparently sees it as a field for play.

Hevesi is the only major candidate for mayor since the CFB began in 1988 to run with only the barest of staffs, and without a traditional headquarters or discernible overhead costs. With payments to Morris's firm concealing and reducing these expenses, Hevesi has been able to air TV ads for months while keeping his spending total only slightly higher than his three Democratic rivals, who have yet to buy commercial time.

That's why the CFBwhich did not hesitate to severely sanction the reelection campaigns of David Dinkins in 1993 and Rudy Giuliani in 1997is now probing the Morris firm, Morris, Carrick & Guma. The five-member board, chaired by Fordham's president, Reverend Joseph O'Hare, will determine if Morris's manipulations are canny evasions of the system or illegal breaches. The board's $539,531 in fines and other penalties against Dinkins came so late in October 1993 that it limited what Dinkins could buy in airtime over the final two weeks. Here are the red flag issues:

While Morris and his aide Josh Isay have been publicly declaring that they're not doing anything different than the firm did in Hevesi's comptroller races of 1989, 1993, and 1997, they are mistaken. For example, Morris's company has already been paid $105,000 in the 2001 election cycle for what are called "compliance costs," i.e., whatever it costs to fill out the voluminous CFB forms. This is one of the few costs that is exempt from the expenditure cap.

Since Hevesi has raised far more money than he can spend under the cap, Morris wants to maximize expenses that can be classified as exempt, especially if it means his firm can get paid without the expenditures counting against the spending limit. In 1997, the Morris company had not billed for any compliance costs by this point in the campaign (in September and October, it claimed a mere $15,000 in compliance expenses). The company billed for no compliance costs at all in 1989 and only $7500 in 1993, when the rules were not as stringent.

The Hevesi campaign this year and in 1997 used an accounting firm to do much of its compliance workHorowitz & Ullmannand that firm earned twice as much ($30,000) as Morris did for compliance over the entire 1997 cycle. In this campaign, Morris is taking almost twice as much for compliance as the Horowitz firm, reversing the 1997 precedent. Morris, who declined to respond to other Voice questions, said that his hyped compliance billings were due to "the massively larger job" of this year's mayoral campaign.

While the total Hevesi spending on compliance is not high, the rising disbursements to Morris suggest that he may be claiming exempt payments for services that aren't really exempt, precisely one of the reasons for the CFB fine against Dinkins in 1993.

In sharp contrast with Hevesi's comptroller runs and those of virtually every other mayoral campaign this year and in the past, Hevesi has claimed another major exempt expenditurepetitioning. His campaign paid $170,105 to get signatures to put him on the ballot and is claiming all of the petition costs as exempt. The only other candidate close to that level is Public Advocate Mark Green, who says he spent $79,000 on paid petition-gathering, but is only claiming half of it as exempt on the theory that petitioning is also a street campaign tactic.

Ruth Messinger, the Democratic mayoral candidate in 1997, and her rivals, Sal Albanese and Reverend Al Sharpton, combined to spend less than $20,000 in exempt expenditures on petitions, while Rudy Giuliani spent $6415. Hevesi spent a paltry $12,105 on his citywide petitions in 1997. The inflated Hevesi cost this yearincluding a $5000 exempt payment to Morris for running itis even more inexplicable if Hevesi only managed to gather 96,431 signatures, less than two of his rivals. Vallone's staff counted Hevesi's signatures and insist that he overstated his supposed 150,000 signatures by 55,000a contention Isay did not deny in a recent NY1 interview.

The CFB issued a letter last week making it clear that Morris can volunteer "a part or all of his time without compensation" as an individual, but that any services donated by his company would be treated as an in-kind contribution and count against the expenditure cap. This opinion means that the CFB audit will closely examine copying, phone, secretarial, utility, rental, supply, fundraising, and other Morris & Carrick costs and how they are allocated to Hevesi usage.

One indication of the disparity, for example, is Green's expenditure of $65,762 for "office start-up, equipment and supplies" versus the $1726 listed by Hevesi for office expenses. Hevesi lists no rentsince it's subsumed into the overall Morris feeand Green lists $60,385. Morris & Carrick's total non-exempt billing to the campaign since 1998 is a meager $125,000, though it may also have taken an undisclosed, and minimal, amount from the TV ad buy.

Beyond these possible corporate subsidies from the Morris firm, Hank Morris individually can only donate his time to the campaign if he isn't being paid by his firm (otherwise, his time is just another corporate contribution). Unless he has been on an extended leave from Morris & Carrick while running this campaign, his attempt to volunteer his services may well be treated by the CFB as a corporate expense that counts against the cap.

Morris is unable to talk about the CFB without a snide growl in his voice. He caustically refers to the new system as Vallone and Green's law, since they were the prime sponsors of the recent reforms. "We intend to fully comply with the campaign law that Mark Green wrote when he changed the rules in the middle of the election cycle," he once barked at the Post. He even stonewalled the CFB for monthsrefusing to return $67,600 in over the limit Hevesi contributions from 1997 and forcing the board's counsel to write earlier this year that his recalcitrance "was a matter of concern, particularly in light of the reminders" sent him by the board's audit unit. Hevesi went so far as to briefly oppose the landmark 4-to-1 matching fund reform. While Green and Vallone have appeared at the periodic CFB hearings to discuss legislative changes, Hevesi hasn't.

The peculiar arrangements at the heart of the Hevesi campaign, now documented in the July 15 filings, are a defiant dare and a risky gamble. While the polls so far have rarely been kind to Hevesi, he is still very much in this race. How the CFB responds may well determine his fate.